2023 COLA, Tax, and Contribution Limit Changes

2023 COLA, Tax, and Contribution Limit Changes

November 10, 2022
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As we get closer to the end of 2023, the annual changes involving Social Security, tax, and contribution limits are upon us. Instead of spending all of the time to look up those changes, we thought we would just give you the highlights all in one place. So, let’s get to it.

Social Security COLA

Unless you have been living under a rock for the last year or so, you’ve realized that the cost of almost everything has risen dramatically with inflation running very hot. Since the start of the year, seniors reliant on Social Security checks have had to try and absorb those rising costs on their own. Well, there is good news for those seniors, because some amount of relief is on the way. The 2023 cost-of-living adjustment will be 8.7% and will be applied starting with January’s benefit payment. And while the increase is very welcome, for most retirees it fails to cover the total increase in expenses they have dealt with.

Contribution Limits

Contribution limits to retirement savings accounts are also getting some big changes. 401k and 403b plan contribution limits in 2023 will increase to $22,500 ($20,500 in 2022) with catch-up contribution limits for individuals over age 50 increasing to $7,500 ($6,500 in 2022). This brings the total contribution amount possible in these plans to $30,000 for those over 50. In addition, IRA limits also increase to $6,500 with the catch-up contribution staying at $1,000. If you happen to participate in a SIMPLE IRA plan through your employer, your contribution limits will increase to $15,500($14,000 in 2022), and catch-up contributions jump to $3,500($3,000 in 2022). These contribution limit increases are some of the largest we have seen in 17 years and yet another major effect of inflation in the United States.

Tax Adjustments

When it comes to tax figures for 2023, there were numerous increases too extensive to cover all in this blog, however, we will give you some of the highlights. The standard deduction for married filing jointly will be $27,200 (up $1,800 from last year). For single/married filing separate the deduction will be 13,850 (up $900), and for heads of household the deduction will be $20,800 (up $1,400).

Marginal tax rate numbers also changed in 2023. Here are the most recent rates:

  • The top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
  • 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
  • 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
  • 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
  • 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
  • 12% for incomes over $11,000 ($22,000 for married couples filing jointly)”
  • The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

Conclusion´╗┐´╗┐

At this point you may be thinking, “What do these changes mean for me and my retirement plan?”. If  that’s the case, give us a call and let’s chat about how we can help you make the most out of these changes and keep your plan on track for success.

For additional information about changes to tax, social security, or contribution increases, please visit the IRS website at irs.gov.

 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Investing includes risks, including fluctuating prices and loss of principal.

3 Peaks Financial does not provide tax or legal advice. Please consult a tax professional before implementing information or strategies found in this publication.

Sources:

https://www.ssa.gov/news/press/factsheets/colafacts2023.pdf

https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500

https://dqydj.com/historical-401k-contribution-limit/

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023